© Robert Byron | Dreamstime

The operators of most snow and ice management businesses are aware that “like-kind” exchanges can be an excellent way to postpone gains that might result when any of the operation’s assets are disposed of. So-called “like-kind” exchanges involve swapping or trading one asset for another without receiving strictly cash on the transaction – or a large, immediate tax bill.

Regardless of whether the property being disposed of has been held for business or investment purposes, whenever there is a gain, tax on that gain must usually be paid at the time of that event. Fortunately, the tax rules allow a snow removal operation to postpone paying tax on the gain if the proceeds are reinvested in similar property in a like-kind exchange. Remember, however, gain deferred in a like-kind exchange is only tax-deferred, not tax-free.

The exchange can include like-kind property exclusively or it can include like-kind property along with cash or property that is not of a like-kind. If cash or property that is not like-kind is received as part of that transaction, it may trigger some taxable gain. Obviously, these transactions, and the rules that govern them, are far from easy to understand – or to qualify under.


Most exchanges must merely be of a “like-kind” – a phrase that doesn’t always mean what many think it does. A qualifying exchange can involve an apartment building exchanged for raw land, a ranch swapped for a strip mall or a salt spreader traded in exchange for a newer snow plow. Under the surprisingly liberal rules, one business can even be exchanged for another. But, again, there are traps for the unwary.

First, both the property given up and the property received must have been held for investment or for productive use in a trade or business. Vehicles, equipment, machinery, etc. used in a business all qualify.

The second basic requirement is obvious: the property exchanged must be of like-kind. A good example is a truck for a truck. With real estate, the most popular type of like-kind exchange is almost any ownership interest in real property exchanged for another interest in real property will qualify. For example, exchanging raw land in a rural area for a rental apartment building in the city qualifies.


Under the tax rules, a snow fighter has 45 days from the date the property is relinquished to identify a new property and 180 days (from when the property is relinquished) to close on the replacement property. Both deadlines are firm.

The first deadline is usually the tightest but it can be manipulated by delaying the transfer of the old property. That will also create more time to close on the replacement property. Taking into account possible delays can help but, remember it’s not unusual to receive an unsolicited offer that you can’t refuse and have to find a replacement property quickly.

© 1miro | Dreamstime


Many snow and ice management professionals have discovered that finding another party for an exchange may be difficult. That’s particularly true when it comes to real estate. Fortunately, there’s an option with all like-kind transactions, using a qualified exchange intermediary and a deferred exchange.

A deferred exchange is an exchange in which a snow removal operation transfers qualifying property and later receives replacement property. If payment is received for the property being relinquished it makes the transaction taxable. Instead, an intermediary is found to hold the proceeds from the sale of the relinquished property and to use that amount to purchase the replacement property. Obviously, care must be exercised to ensure that no money or “unlike property” is received in order to avoid a transaction that may be partially taxable.

In a deferred exchange identifying the property to be received must occur within 45 days after the date of transfer for the property given up in the exchange (the identification period). Any property received during the identification period is considered to be identified. If multiple properties are transferred at different times, the identification period begins on the date of the earliest transfer.


Trade-ins are probably the most common type of like-kind exchanges. The same rules apply, but the time restraints are rarely an issue. For example, the snow removal business goes to their local dealer to replace a truck. It’s unlikely anyone would relinquish their truck only to wait more than 180 days for a new one.

Thanks to a unique twist, a snow and ice management operation’s vehicle or equipment trade-in is more likely to result in a loss than with real estate. Or the operation may want a higher basis or book value in the property for depreciation, the Section 179 first-year expensing write-off or bonus deprecation purposes.

Although there are any number of reasons for recognizing gain from a sale, a good rule of thumb is to always trade “across” or up. Never trade down – the "even or up rule.” Trading down always results in boot received, either cash, debt reduction or both. But, what is “boot?”


When cash or unlike property (often referred to as "boot") plays a role in a Section 1031 transaction, or liabilities are assumed by one or both parties, these exchanges get a little trickier. The term "boot" is not used in the tax law or regulations, but affects the consequences of Section 1031 tax-deferred exchanges. Boot received is the money or the fair market value of “other property” received by a snow removal business in an exchange.

The term “money” includes all cash equivalents plus liabilities of the taxpayer assumed by the other party, or liabilities to which the property exchanged by the taxpayer is subject to. “Other property” includes everything non-like-kind, such as personal property received in an exchange of real property, property used for personal purposes or “non-qualified property.” Other property also includes such things as a promissory note received from a buyer (Seller Financing).

“Under the surprisingly liberal rules, one business can even be exchanged for another.”


Generally, in a like-kind exchange the carryover basis of replacement property is depreciated using the same life and convention, and over the same remaining period as the property relinquished. Any additional basis is depreciated using the appropriate life and convention that would apply to the new property.

Special rules apply if the tax lives of the relinquished and replacement properties are different. That occurs most frequently when there’s an exchange of real estate where a commercial property (life of 39 years) is exchanged for a residential property (life of 27.5 years).

Similar rules apply with deferred like-kind exchanges. Generally, depreciation cannot be taken for the period after the disposition of the relinquished property and before the acquisition of the replacement property. Special rules also apply to autos and trucks subject to the write-off caps and depreciation limitations.

Mark E. Battersby is a finance writer based in Ardmore, Pa., and a frequent Snow Magazine contributor.